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“Hands off My Medicare”: The Deadly Legacy of Social Insurance

House and Senate Democrats hammering out the health care bills this week share the conviction that only those who pay into the insurance system are deserving of its benefits. This may be good politics, but it’s bad public policy. And, while appealing to moderates in both parties, it’s an assumption that’s going to doom health care reform.

This “social insurance” system is organized around regular contributions from wage earners. These contributions are then returned in the form of benefits (funeral expenses, pensions, unemployment insurance). It works, in other words, more like a toll road than a public right-of-way. The on-ramp to that toll road is a “covered job,” the point at which revenues are collected and benefits are disbursed.

Social insurance was embraced by American reformers early in the last century. At the time, the American state was ill-equipped, fiscally and constitutionally, to offer much more. And the “contributory” model was easy to reconcile with American ideals of self-help and small government. “The wage earner,” as one reformer argued, “has a more real basis for feeling that the benefits he receives are rights to which he as a citizen is entitled.”

The same notions were at the heart of the New Deal. “We put those payroll contributions in there so as to give the contributors a legal, moral, and political right to collect,” Franklin Roosevelt observed, “. . . with those taxes in there, no damn politician can ever scrap my Social Security program.”

FDR was right, but perhaps not in the way he intended. The social insurance idea opened a political chasm between two tracks of social policy. Those Social Security programs financed through contributions (such as the old age pension program), became untouchable. Their commitments were sacred. Their recipients were unequivocally deserving.

But those programs financed through general revenue were always vulnerable. Their budgets were uncertain. Their goals were questioned. And their recipients were suspect. Ronald Reagan’s “welfare queen” was condemned not because she defrauded the system, but because she did not contribute to it.

The social insurance idea is even more troublesome for health care. Before the 1940s, health insurance offered indemnity coverage, simply replacing the wages of those who were sick. Over time, health insurance began to cover the growing costs of medical care and hospitalization. As it did, the logic of social insurance collapsed.

Public health insurance would not and could not work like social security. Health care was an uncertain risk. This meant, as the American Medical Association and others argued tirelessly, that healthy contributors might see little return while the sick and the malingering claimed the lion’s share of benefits. Reformers clung to the political and fiscal appeal of social insurance. The passage of Medicare and Medicaid in 1965 replicated the split between contributory and general revenue programs. But they were pounding a square peg into a round hole.

In turn, it never made much sense to funnel family health coverage through job-based insurance. This burden was always resented by employers. Indeed job-based health plans were slow to add dependent coverage and quick to retreat. Premiums for family coverage have risen over 130 percent in the last decade, a rate three times the growth of wages. Although current health reform pays homage to the American system of job-based coverage, “covered workers” have been almost entirely displaced by “consumers” and “individuals.”

So where does this leave us? In the current debate, the social insurance ideal is so triumphant that any hint of general benefits based on general revenues (public education anyone?) is a nonstarter. Instead, we get a bewildering patchwork of job-based coverage, mandated private insurance, and maybe expansion of public programs. In each case, one’s right to coverage is intrinsically linked to one’s contributions.

The final irony, of course, is the peculiar conviction that contributory government plans are not run by the government at all. Town hall protesters (and nearly 40 percent of Americans in a recent poll) have urged reformers to “keep your government hands off my Medicare.” This says something about the cynicism of reform’s opponents. But it says much more about our longstanding and debilitating fascination with social insurance.

Defense of this idea has generated flashpoints of debate in both bills (the storm and fury over the public option, the “keep what you have” sanctity of private coverage) and the important differences between them. Social benefits rest not on the basis of need, nor on general rights and obligations of citizenship. They remain — as reformers in the last century liked to put it — an “earned right.”

As long as this is the case, health reform will be dead on arrival. The current bills do little more than prop up job-based social insurance, or mop up around its edges. The proposed patchwork of mandates, regulations, and subsidies do nothing to address the administrative waste, actuarial complexity and naked profiteering that created the health care crisis in the first place.

Colin Gordon is professor and chair of history at the University of Iowa and a writer for the History News Service. He is the author of "Dead on Arrival: The Politics of Health Care in Twentieth-Century America."